India Joins the Global Dedollarisation Drive — And the Rupee Is Its Weapon

From Moscow to Brasília, Beijing to Abu Dhabi, governments are rewriting trade playbooks to reduce dependence on the U.S. currency. Now New Delhi is pushing the Indian rupee as a credible alternative — not to replace the dollar, but to carve out space for itself in a multipolar financial world.

The Finance Ministry’s Monthly Economic Review for September 2025 signals how far this effort has come. Beneath routine growth updates lies a quiet revolution: the internationalisation of the rupee, driven by new regulatory reforms, expanding trade corridors, and the rising global appetite for local-currency settlements.

The goal is clear — make the rupee tradable, investable, and respectable across borders.

The Dedollarisation Wave

The shift comes amid the largest global dedollarisation wave in half a century. The U.S. currency still dominates — accounting for nearly 58% of global forex reserves — but that share has fallen sharply from over 70% two decades ago.

China is settling oil in yuan, Russia trades energy in rubles and dirhams, and BRICS nations are floating plans for a new payments mechanism. For India, whose imports, remittances, and external borrowing are overwhelmingly dollar-denominated, the costs of this dependency are growing clearer.

Dollar strength amplifies import inflation, disrupts payment flows during sanctions, and exposes India’s fiscal math to exchange-rate swings. The rupee strategy, as laid out in the government’s review, is meant to blunt that exposure — by building a parallel ecosystem of rupee trade and finance.

“This is not anti-dollar,” said a senior finance official. “It’s about financial autonomy — to make sure our trade and payments can’t be held hostage to someone else’s policy cycle.”

The Rupee Steps Out

The Monthly Economic Review details how the Reserve Bank of India has moved from experimentation to execution.

It now permits Special Rupee Vostro Accounts — held by foreign banks in Indian lenders — to be used not only for trade settlements but also for investments in government securities, corporate bonds, and commercial paper. That transforms rupee balances from idle holdings into usable assets.

At the same time, Indian banks can lend in rupees to non-residents in South Asian economies such as Nepal, Bhutan, and Sri Lanka for trade financing. The RBI is also establishing official rupee reference rates against select currencies to stabilise cross-border pricing.

Together, these reforms form the scaffolding of a regional rupee market. As one policy note puts it, India’s aim is to become the “financial nerve centre of the Global South” — a payments hub anchored in rupees.

A Fragmented World, A Local-Currency Future

The global backdrop is ripe for such ambition. The Monthly Economic Review describes a “fractured global order” where protectionism, tariff wars, and sanctions have made trade in national currencies a form of economic self-defence.

The Trade Policy Uncertainty Index soared nearly 400% year-on-year in Q3 2025. Global trade expanded just 2.5% quarter-on-quarter, with most of the momentum shifting to developing countries that increasingly prefer regional or currency-neutral settlements.

India’s pitch fits that moment. With its GDP growing near 6.8%, inflation falling to 1.54% — the lowest in eight years — and foreign exchange reserves of $698 billion, India enters the dedollarisation race from a position of strength.

Unlike China, whose yuan expansion is often seen as geopolitical, India’s approach is transactional and trust-based — built on trade efficiency rather than political leverage.

Trade Power Behind the Push

The numbers back the ambition. India’s total exports of goods and services rose 4.4% year-on-year in the first half of FY26 to $413 billion, while imports climbed 3.5% to $472 billion, narrowing the deficit to $59.5 billion.

Services exports — primarily IT, finance, and consulting — generated a record $95-billion surplus, offsetting most of the goods trade gap.

Crucially, non-petroleum, non-gem exports grew 7.5%, and electronics exports surged 42%, suggesting that rupee settlements could expand fastest in high-value manufacturing and services where India holds competitive strength.

These trade flows already form the backbone of India’s rupee corridors with nations like Sri Lanka, the UAE, and parts of Africa. The upcoming India–Middle East–Europe Economic Corridor (IMEC) could become the rupee’s testing ground for large-scale cross-border infrastructure payments.

The Limits of a Currency Revolution

Still, dedollarisation is easier declared than done. The rupee is not fully convertible, and offshore liquidity remains shallow compared with the yuan or euro. Without consistent trade surpluses, the supply of rupees abroad is limited.

Foreign partners also face exchange-rate risk, since the rupee’s managed float leaves room for depreciation against the dollar. Analysts warn that rupee trade must be backed by deep bond markets and credible hedging mechanisms.

“You can’t globalise a currency without globalising its ecosystem,” said an economist at ICRIER. “That means deeper financial markets, fiscal transparency, and macro stability — India’s heading there, but it’s a long road.”

The Long Game

The Monthly Economic Review makes the strategy plain: dedollarisation is not about dismantling the old order but building parallel resilience.

By creating mechanisms for trade, investment, and credit in rupees, India is insulating itself from external shocks — from U.S. interest-rate swings to dollar liquidity crunches.

It’s also a play for influence. Every rupee trade account opened abroad ties another economy closer to India’s financial system. Over time, that could translate into political leverage, cheaper trade financing, and a regional currency sphere stretching from the Himalayas to the Gulf.

In the short term, it’s a hedge against volatility. In the long term, it’s India’s bid for quiet power — currency as diplomacy.

As one senior ministry official put it: “We spent decades chasing dollars. Now, we’re building a world where others might chase rupees.”